Wednesday, December 30, 2009
According to a press release issued this afternoon, the joint Blow Horn Equity - Angelos family bid will go forward despite the ongoing uncertainty over whether the slot machine license earmarked for Anne Arundel County, where Laurel Park is located, will be awarded to developer David Cordish's Arundel Mills shopping center, just up the road from Laurel. The slots license had been intended for Laurel, but Magna generalissimo Frank Stronach decided he could ignore the rules and didn't pony up the required deposit with his application. As a result, the state had no choice but to accept the competing bid from Cordish, a decision that has now been confirmed by the Anne Arundel county government.
While the bidders would certainly like to have the slots decision overturned -- and Angelos is a prominent player in Maryland Democratic circles -- they say the bid is based on racing, not slot machines. Of course, the MJC properties -- Laurel, Pimlico and the Bowie training center -- are worth a lot less without the operator's share of the slots revenue.
Angelos is a Baltimore trial lawyer who got rich representing plaintiffs in major asbestos, tobacco and diet-pill cases. In 1993, he led the investor group that purchased the Baltimore Orioles, and in 1998 he bought the 237-acre Ross Valley Farm in Baltimore County for his thoroughbred breeding and racing operation.
With Angelos' financial muscle, plus the private equity funds pulled together by Jeff Seder in Blow Horn Equity, the group seems in position to make a credible bid at the bankruptcy auction.
Let's hope so; they're the only potential bidders I can see who actually know something about racing.
Monday, December 28, 2009
Friday, December 18, 2009
Saturday, December 12, 2009
Wednesday, December 9, 2009
That got me thinking about why any of us bet on the races at all. In my own case, I've noticed that I hardly bet these days, certainly a lot less than I did, say, 10-15 years ago, even though I'm still as much, or more, of a follower of racing.
It seems to me that there are two likely reasons, in my own case. These may be merely personal, but perhaps they shed some light on the death spiral that racing as a whole seems to be in.
First, I've become involved in owning horses -- in fact, in managing a partnership operation, Castle Village Farm, that makes it possible for lots of racetrackers and handicappers to become thoroughbred owners at a reasonable cost. The more I've become involved with the tremendous ups and downs of having our own race horses, the less the desire to bet on other peoples'. Of course, buying race horses might also be considered betting, and at a far larger scale than that of the average recreational handicapper, but if you go into the ownership game with your eyes wide open, knowing that you're not all that likely to make money, but that you'll get a lot of thrills along the way, the risk aspect seems to become less important.
Second, and perhaps most relevant for the general state of racing today, I've found that it's just too hard to beat the takeout. According to the Horseplayers' Association of North America (HANA) ratings, hardly any tracks take out less than 15% on win-place-show wagering or 19% on exactas and other multiples. Even if one is quicker and smarter than most of the other bettors, that's a huge hurdle. Now, if I bet a few million a year through a rebate shop, reducing my effective takeout to the single digits, it might be another story. But, alas, I don't have the kind of bankroll necessary for that, nor the patience for the mind-numbing computer-assisted search for miniscule overlays that's the heart of many big bettors' operations.
Fortunately for me, and for many others who might, in earlier times, have stayed with the race track because it was the only game in town, there are some much more attractive options for satisfying the gambling urge. For those who find all that handicapping too hard, and just want action, slot machines will do just fine, and they have a takeout that's usually below 10%. Of course, you don't have half an hour between plays at the slot machine, so the $20 that takes a whole afternoon to lose, in $2 bets, at the track can go in 15 minutes at the casino, even with the lower takeout. But millions of folks seem to find the mindlessness of the slots quite satisfying, and, if and when we ever get slots at Aqueduct, I'll be very happy to see some of their money make its way into the purse account.
But the real gambling rival to handicapping is poker. The game combines many of the same elements as trying to pick a winner at the track -- knowledge of the odds, good math skills, and an acceptance of fate -- you can make make a brilliant overlay bet in racing and see it ruined by a stupid jockey mistake, or you can make all the right bets in a hand of Texas Hold-Em and lose when some moron who shouldn't even have stayed in the hand gets the one card in the deck that could beat you on the river. So, in either case, you have to be satisfied with having made the right bet, even when you lose. Another similarity is that it takes stamina and determination to play the game well. Just as you have to put in the time handicapping to have even a shot at beating the races, so too do you have to put in the time at the poker table, whether real or virtual, to convert your advantage in skill into real money.
And, most important, poker has takeout rates that are far, far better than those in racing. The most you'll ever pay, in a low-stakes game at a casino, is about 10%, and the number is much less than that as the stakes rise, or in online poker, where the takeout ("rake") is generally only a couple of percent.
If we're looking for the racing fans of the future, I've seen them, and they're not coming to the races; they're at the poker tables. If racing could capture a tenth of the 20-somethings who are playing poker online or at casinos and card rooms these days, we wouldn't have to worry about declines in handle any more.
Those who argue against cutting takeout in racing say that most bettors don't even know what the takeout rates are; if they did, would anyone at all bet at NYC OTB, with its ludicrous 5% surcharge? But that argument is false even for racing; the big bettors go to the rebate shops, where they can get takeout reduced to a reasonable level. And all those young poker players are certainly conscious of the odds and the takeout rates. They're good at math, and they know what they're buying into, whether it's a lower rake, better "comps" from the casino, or a bigger jackpot (cf. Pick Six carryovers).
So, if we ever want to see those kids at the track, we have to give them a product they'll buy. And, given the competition from poker and, to a lesser extent, slots, that means reducing takeout to somewhere around 10%.
Now, the trick is to figure out how to run a race track and put enough in the purse account to keep the horsemen in the game, all the while relying on a 10% cut of the betting dollar.
Thursday, November 26, 2009
Monday, November 23, 2009
Monday, September 21, 2009
But, in fact, even if one buys at those fair prices, the game is still stacked against the owner who actually wants to make money by owning race horses. Despite the increasing saturation of race track-based slot machines, purses have stagnated and even declined, while the cost of doing business steadily increases.
Let's look at a couple of examples to see how succesful a horse has to be on the track for its owner to break even.
First, let's look at a typical high-end yearling purchase, say for $250,000. That's not the top of the market, but it's a lot more than I tend to carry around in my wallet for impulse purchases.
On top of the $250,000 puchase price, we need to add about 5% for a commission to the bloodstock agent; you wouldn't buy a horse at that level without expert advice. That's $12,500. Throw in another $7,500 for sale expenses, including vetting all the horses that you end up not buying. Then there's insurance, which you'd want on an expensive horse. Probably $45,000 to the end of its 4-year0old year, or about 6% of the insured value annually.
Then we send the horse to Florida for breaking and preliminary training, before sending him back north (let's say Saratoga) in the middle of his two-year-old year. That's another $20,000 for training and vet, plus about $4,000 for all the increasingly expensive van rides. So far, we're up to $339,000.
Now, let's add in training the horse at the track from August of its two-year-old year through the end of its four-year-old year. We'll hire a top-level trainer, at say $125 a day, and, even if we try to manage vet costs, they won't be less than $500 a month. So, training and vet costs to the end of the four-year-old season are another $125,000. All together, we've spent about $464,000 to get the horse that far.
So, how much does the horse need to earn on the track to break even? A lot more than $464,000. The trainer gets at least 10%, and, increasingly, more like 12% of earnings; the jockey gets on average another 7%, and, at least if you race in New York, another 3% or so goes for a variety of mandatory deductions. So we have to gross up the required earnings to get back to our net target of $464,000. In fact, we'd need to earn almost $600,000 in purses just to break even.
Sure, there's some possibility of residual stallion or broodmare value at this level, but in the current market, and discounting for the time value of whatever money might come in down the road, that isn't going to be much. If we're looking at making a profit on the race track, we need that $600,000. And how many horses earn that much?
Now let's take a more modest example. Say we buy a decent New York-bred yearling for $35,000. We won't bother with a bloodstock adviser, and we'll skip the insurance. And we'll probably be tougher on the vet expenses, and place the horse with a trainer whose day rate is more like $100 a day. Using those parameters, it'll cost us a total of $80,000, including the purchase price, to get our $35,000 yearling to the end of its two-year-old year, assuming we send it to the track in August, and another $88,000 for two years of training and vet bills. So, by the end of its four-year-old year, we've spent $168,000.
Applying the same formula to gross up the earnings for trainers' and jockeys' percentages, we'd need purse earnings of $215,000 to get even on our $35,000 yearling. I've had a few horses that did that well, but it's not an everyday occurrence. Look at the lifetime earnings for horses running in New York and you won't see that many above $200,000.
And all these projections don't include all the little extra costs that go with being an owner, from lunches for friends at the turf club to, one hopes, lots of win pictures, to stakes nominations, to donations to worthy race track charities.
So, why are we in this business? Because we love horses and have a terrific ability to see the future through the rosiest of rose-colored glasses. It's a great business to be in. Just don't expect to make money.
Wednesday, September 16, 2009
If not for you,
Winter would have no spring,
Couldn't hear the robin sing,
I just wouldn't have a clue,
Anyway it wouldn't ring true,
If not for you.
Bob Dylan, ©1970 Big Sky Music
I'm pretty sure the folks at Keeneland, shaken as they may be by the bottom falling out of the yearling market the past two days, nonetheless harbor thoughts similar to those of Bob Dylan about Dubai's Sheikh Mohammed bin Rashid Al Maktoum and his entourage. Of the 222 horses reported sold on the first two days of the annual Keeneland yearling sale, 50 of them were purchased by the Sheikh's bloodstock adviser, John Ferguson, or by entities associated with Dubai's royal family, including the Shadwell Estate Co., and Rabbah Bloodstock. That's an overwhelming 22.5% of the total number sold, and an even bigger percentage of the money paid over those two days. Gross receipts for the prestigious Book 1 horses sold at Keeneland this year were $58.8 million (a 48% drop from last year). And of that sharply reduced amount, the Dubai forces accounted for $18,305,000, or mre than 31% of the gross sales. If not for you, your Highness....
If we subtract the Dubai-associated purchases from the results, then here's what's left: 172 horses sold (of a total of 418 cataloged) for $40,451,000, an average of just over $235,000. Sure, we can assume that most of the horses purchased by the folks from Dubai would have sold even without their bids, but certainly at lower prices. In fact, it's not unreasonable to assume that the average for the sale would have been a lot closer to that $235,000 than to the actually reported average -- including Dubai -- of $265,000.
As compared to their equally visible activity at the boutique Fasig-Tipton Saratoga yearling sale last month, the Dubai forces at Keeneland put less emphasis on supporting their own sires -- Street Cry, Bernardini and Medaglia D'Oro, and more on acquiring superior racing and breeding prospects at what, for them, must have seemed like bargain prices. Only 16 of the 50 horses bought by Ferguson, Shadwell and Rabbah were sired by their own stallions, compared with more than half of their Saratoga purchases.
(Shadwell and Rabbah were still somewhat active early on Wednesday, buying three of the first 50 horses to go through the ring on the first day of Book 2 of the sale, though there was little prospect for any more million-dollar-plus purchases by any of the Dubai buyers.)
With this year's purchases, the Sheikh and his associates are aquiring a lot of stellar American bloodlines. They bought yearlings, for example, by A P Indy, Storm Cat, Distorted Humor, Tapit (a new sire whose yearlings look great and who, I think, will make a name for himself quickly), Dynaformer, Ghostzapper, Kingmambo, Elusive Quality, Forestry, Rahy and Unbridled's Song, in addition to those by their own sires. They've also taken advantage of the price collapse to buy into some of the premier American female familes. With another year or two of such purchases, the Sheikh may have all the bloodstock he needs to breed the very best race horses in the world. If and when that time comes, and he cuts back on the volume of his purchases, the yearling market will be in for an even more serious shock.
If not for you....